THE ESSENTIAL GALBRAITH includes key selections from the most important works of John Kenneth Galbraith, one of the most distinguished writers of our time - from THE AFFLUENT SOCIETY, the groundbreaking book in which he conined the tern "conventional wisdom," to THE GREAT CRASH, an unsurpassed account of the events that triggered America's worst economic crisis. Galbraith’s new introductions place the works in their historical moment and make clear their enduring relevance for the new century. THE ESSENTIAL GALBRAITH will delight old admirers and introduce one of our most beloved writers to a new generation of readers. It is also an indispensable resource for scholars and students of economics, history, and politics, offering unparalleled access to the seminal writings of an extraordinary thinker.

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About the Author:

John Kenneth Galbraith (1908-2006) was a critically acclaimed author and one of America's foremost economists. His most famous works include The Affluent Society, The Good Society, and The Great Crash. Galbraith was the receipient of the Order of Canada and the Robert F. Kennedy Book Award for Lifetime Achievement, and he was twice awarded the Presidential Medal of Freedom.

Preface I send this book to press and on to my readers with one slight sense of concern. It is that someone will ask who decided that this was The Essential Galbraith. The author will be a plausible suspect. In fact, it was associates, my publisher and the wider professional and reading public who were responsible. The selection here is of writing that is thought to have had some durable impact on economic and other scholarly thought or on the world at large. Thus, as later noted, the piece on Countervailing Power, an excerpt from American Capitalism, is still in print after nearly fifty years. The balance of power between buyer and seller therein described was considered a major modification of the traditional competitive supply-and-demand construct to which all who have studied economics were exposed. It is perhaps a measure of the enduring nature of the term "the Conventional Wisdom," as defined in the second essay, that one rarely gets through a newspaper today without encountering it. Though I try, however unsuccessfully, to convey an aspect of modesty, I am always pleased to have added this phrase to the language. The Affluent Society, from which several chapters are here included, was the most widely published economic volume of its time. After his nomination for President in 1960, one of the first questions asked of John F. Kennedy was whether, if elected, he would be guided by the ideas expressed by his known supporter in that book. He responded favorably but also with a certain note of ambiguity. Later in this collection come three pieces from The Great Crash, 1929, which was published in 1955, just after the twenty-fifth anniversary of that catastrophic event. It was a bestseller at the time; so it has remained to this day. Even now, as we are launched in a new century, there is inevitable unease about the future of the economy and therewith the stock market, so a knowledge of what happened in 1929 is, indeed, still essential. There are other essays here which were similarly selected and thus selected themselves. The reader will, I think, have no trouble accepting their relevance either to history or to the present day, and I have added some headnotes to suggest my view of their particular significance then and now. I end with a paper given at the London School of Economics in 1999 on the unfinished business of the millennium; this had the largest circulation both here in the United States and around the world of any lecture I have ever given. John Kenneth Galbraith March 2001

introduction If, as Professor Galbraith says in the preface, others are responsible for the contents of this book, it is of primary interest to inquire why he himself eschews the credit. It has been widely believed that he is not a man for whom modesty is a familiar virtue, so why does he find it necessary now to step back into the shadows? The answer seems to lie in the fact that what has been considered vanity could be better viewed as a deep sense of security. He is secure in his basic beliefs and secure that his readers, for whom he has the deepest respect, will be able to discern them. He is not given to self-analysis, and so, while he clearly understands what is the Essential Galbraith, he prefers that others define it. It should first be noted that in the pages that follow, readers will find John Kenneth Galbraith the economist and the writer, with little trace of the diplomat, the art historian, the novelist, the book reviewer, the theater critic or even, except in the last essay, the lecturer. This is highly appropriate, because economics has, in fact, been his chosen field and writing his obviously innate talent. He has always believed that economics should be studied not in the abstract or as a mathematical construct but as it affects the lives of men and women every day. He is not afraid to overturn or at least reexamine strongly held beliefs of earlier generations, realizing that as technology, communications and business change, so too must the economist"s interpretation of them. He has brought to the subject a new way of looking at the role of the great corporations as they faced the countervailing power of trade unions and consumer coalitions. He has identified those who are the guiding intelligence of the corporate world, naming them the technostructure, and has undermined belief in what he calls the myth of consumer sovereignty. A better balance between public and private expenditures has been a recurring theme in his writing, with its reminder that the affluence of our contemporary society should be made to extend to the poorest and most defenseless of our citizens. The uses of power and the persistence of financial euphoria in our public marketplace have consistently attracted his interest, as have the problems of the developing countries, notably India. Above all, the constant thread through his work is his concern with how economics affects the quality of our daily lives and how it will change that of succeeding generations. These are some of the essentials of the Essential Galbraith, but there are more. There is his continuing fondness for certain of his economic predecessors -- for the gift for language and the basic structure that Adam Smith gave to political economy, for the irreverence and unique perception of Thorstein Veblen, for the profound effect John Maynard Keynes and his General Theory of Employment Interest and Money had and continue to have on the economic world. Finally, there is a writing style that illuminates and enhances all that is said: sardonic humor, felicitous phrasing, reasoned argument in reasonable words or, as he would say, clarity of thought reflected in clarity of prose. So how can the Essential Galbraith be defined? He is a committed liberal, a compassionate optimist, a cautious but firm iconoclast and a writer whose words can change the way the world looks at its problems. And none of that would he ever write about himself. Andrea D. Williams March 2001

The Essential Galbraith

Countervailing Power [from American Capitalism] This is a chapter from one of my first books, the generously titled American Capitalism, which came out in 1952, barely into the second half of the last century. Then, and for well over a hundred years before, a near-sacred doctrine in the economic textbooks had been the beneficent regulatory role of competition. It was the competition of many sellers that protected the consumer and also the individually powerless wage earner from the full economic effects of monopoly. The preservation of competition through the antitrust laws -- the fabled Sherman Act in particular -- was a vital element of public policy going back to the latter part of the nineteenth century. Now, as I argued in American Capitalism, a new process was at work: trade unions, a countering organizational force, were the obvious response to the greater power of the big corporations. Similarly, but less evidently, when there was one expression of economic power -- such as the large producer of consumer staples -- another one developed in the form of the seller of those staples -- the A&P or the latter-day Wal-Mart. The numerous and technically competitive farmers found their best economic recourse in purchasing cooperatives when dealing with those who bought and bargained for their product. Thus the answer to monopoly was less and less the rule of law and more and more the coercion of countering bargaining power. Not exceptionally, perhaps, I carried this idea somewhat to the extreme, but it did involve an impressive attack on established belief. A substantial number of economists greeted my thesis with interest and approval when it was published, but a much larger number of defenders of the orthodox view were strongly at odds. At the annual meeting of the American Economic Association, the most prestigious gathering of economists, it was suggested by the head of the organization, the distinguished Calvin Hoover of Duke University, that there be a major reception for the book. This was quickly vetoed, but a special meeting to discuss it was added to the program. At lunch that day I heard someone at the next table say, "We must go now -- it"s time to hear them kill off Galbraith." It didn"t prove to be quite that bad; there was even some supporting comment. The concept of countervailing power was allowed to pass into economics and in a small way into public instruction. The book has been continuously in print ever since -- as I say, a matter of almost fifty years. * * * * On the night of November 2, 1907, J. P. Morgan the elder played solitaire in his library while panic gripped Wall Street. Then, when the other bankers had divided up the cost of saving the tottering Trust Company of America, he presided at the signing of the agreement, authorized the purchase of the Tennessee Coal & Iron Company by the Steel Corporation to encourage the market, cleared the transaction with President Roosevelt and the panic was over. There, as legend has preserved and doubtless improved the story, was a man with power a self-respecting man could fear. A mere two decades later, in the crash of 1929, it was evident that the Wall Street bankers were as helpless as everyone else. Their effort to check the collapse in the market in the autumn of that year is now recalled as an amusing anecdote; the heads of the New York Stock Exchange and the National City Bank fell into the toils of the law and the first went to prison; the son of the Great Morgan went to a congressional hearing in Washington and acquired fame, not for his authority, but for his embarrassment when a circus midget was placed on his knee. As the banker as a symbol of economic power passed into the shadows, his place was taken by the giant industrial corporation. The substitute was much more plausible. The association of power with the banker had always depended on the somewhat tenuous belief in a "money trust" -- on the notion that the means for financing the initiation and expansion of business enterprises was concentrated in the hands of a few men. The ancestry of this idea was in Marx"s doctrine of finance capital; it was not susceptible to statistical or other empirical verification, at least in the United States. By contrast, the fact that a substantial proportion of all production was concentrated in the hands of a relatively small number of huge firms was readily verified. That three or four giant firms in an industry might exercise power analogous to that of a monopoly, and not different in consequences, was an idea that had come to have the most respectable of ancestry in classical economics. So, as the J. P. Morgan Company left the stage, it was replaced by the two hundred largest corporations -- giant devils in company strength. Here was economic power identified by the greatest and most conservative tradition in economic theory. Here was power to control the prices the citizen paid, the wages he received, and which interposed the most formidable of obstacles of size and experience to the aspiring new firm. What more might it accomplish were it to turn its vast resources to corrupting politics and controlling access to public opinion? Yet, as was so dramatically revealed to be the case with the omnipotence of the banker in 1929, there are considerable gaps between the myth and the fact. The comparative importance of a small number of great corporations in the American economy cannot be denied except by those who have a singular immunity to statistical evidence or a striking capacity to manipulate it. In principle, the American is controlled, livelihood and soul, by the large corporation; in practice, he or she seems not to be completely enslaved. Once again the danger is in the future; the present seems still tolerable. Once again there may be lessons from the present which, if learned, will save us in the future. ii As with social efficiency and its neglect of technical dynamics, the paradox of the unexercised power of the large corporation begins with an important oversight in the underlying economic theory. In the competitive model -- the economy of many sellers, each with a small share of the total market -- the restraint on the private exercise of economic power was provided by other firms on the same side of the market. It was the eagerness of competitors to sell, not the complaints of buyers, that saved the latter from spoliation. It was assumed, no doubt accurately, that the nineteenth-century textile manufacturer who overcharged for his product would promptly lose his market to another manufacturer who did not. If all manufacturers found themselves in a position where they could exploit a strong demand and mark up their prices accordingly, there would soon be an inflow of new competitors. The resulting increase in supply would bring prices and profits back to normal. As with the seller who was tempted to use his economic power against the customer, so with the buyer who was tempted to use it against his labor or suppliers. The man who paid less than the prevailing wage would lose his labor force to those who paid the worker his full (marginal) contribution to the earnings of the firm. In all cases the incentive to socially desirable behavior was provided by the competitor. It was to the same side of the market -- the restraint of sellers by other sellers and of buyers by other buyers, in other words to competition -- that economists came to look for the self-regulatory mechanism of the economy. They also came to look to competition exclusively, and in formal theory they still do. The notion that there might be another regulatory mechanism in the economy has been almost completely excluded from economic thought. Thus, with the widespread disappearance of competition in its classical form and its replacement by the small group of firms if not in overt, at least in conventional or tacit collusion, it was easy to suppose that since competition had disappeared, all effective restraint on private power had disappeared. Indeed, this conclusion was all but inevitable if no search was made for other restraints, and so complete was the preoccupation with competition that none was. In fact, new restraints on private power did appear to replace competition. They were nurtured by the same process of concentration which impaired or destroyed competition. But they appeared not on the same side of the market but on the opposite side, not wi...

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